MercoPress. South Atlantic News Agency

Further ‘parsimonious’ monetary-easing anticipated from Brazilian central bank

Traders betting the bank will lower the Selic rate as much as 75 points by November

Brazil’s central bank reiterated that inflation will continue to slow toward its target, signalling it will further reduce interest rates that have already been cut to a record.

In the minutes of the July 10/11 monetary policy committee meeting published Thursday, the bank said future monetary easing would be carried out with “parsimony,” repeating language it used ahead of its two previous meetings to signal half-point rate cuts. The bank’s board voted unanimously last week to cut the Selic for an eighth straight time to 8%.

Brazil’s economy has been slow to react to tax cuts, lower borrowing costs and other stimulus measures as companies cut production and overstretched consumers delay purchases of big- ticket items amid a global slowdown. While GDP expanded at half the annualized pace of the US in the first quarter, policy makers said that growth will pick up during the remainder of the year without stoking inflation.

“At the moment the risks for the inflation trajectory remain limited,” the bank said in the minutes. Policy makers said the international outlook remains “dis-inflationary” and a domestic recovery “gradual,” adding that they don’t anticipate any “extreme event” in financial markets. The bank said its main outlook takes into account a “more intense rhythm of economic activity” in the second half of the year.

The bank has lowered the benchmark rate by 450 basis points since August in an attempt to bolster economic growth and shield the second-largest emerging market from the European debt crisis.

Traders are betting the bank will lower the Selic by as much as 75 basis points by November, based on swap rates. Slower growth is translating into smaller consumer price increases, as inflation slowed to 4.92% in June, its lowest level in two years. The central bank targets inflation of 4.5% plus or minus two percentage points.

Economists covering Brazil cut their 2012 growth forecast to 1.9%, according to the latest central bank survey. The estimate fell below 2% for the first time this year and marked the 10th straight weekly reduction. GDP expanded an annualized 0.8 percent in the first quarter.

However the IGP-M index, which is 60% weighted in wholesale prices, rose 1.11% between June 21 and July 10, the Getulio Vargas Foundation said on Thursday.

Finance Minister Guido Mantega said on July 4 that gross domestic product will be expanding at a 3.5% to 4% pace in the second half of the year as the stimulus measures work their way through the economy.